Why is this tax overlooked?

To date, there has been little discussion about CCL; where it is from, how it works and how to mitigate the costs etc. This may be because some people find the concept of managing such a tax either impossible or unachievable. However, with the right support, CCL can be easily managed. The upcoming rate increase has the potential to add tens of thousands of pounds to non-domestic bills. Therefore, now more than ever, it is crucial to understand CCL and how it can be reduced.

This article looks at the background of CCL, the revenue it generates for the government, the history of rates to date, a full cost analysis covering seven key sectors for the period 2018 to 2022 and a breakdown of how to mitigate CCL costs to your organisation.

CCL affects all businesses. Exemptions only apply to businesses with low energy use and most charities/non-profit organisations.

Background

CCL is an energy tax that was introduced in 2001 through the finance act. It was solely aimed at non-domestic energy users and has since remained that way. Its scope was to encourage energy efficiency and reduce energy use where possible.

CCL is calculated based on the amount of energy being supplied and is charged by the supplier of the taxable commodity. Suppliers then pay the collected tax to HM Revenue and Customs. It is charged at a flat rate on every kilowatt-hour (kWh) of energy used.

Since its implementation, it has since grown in revenue year on year. According to statista.com, in 2017, CCL brought in £1.8bn to the UK government. With the upcoming rate increase to balance out other energy taxes being abolished, this is set to rise for the foreseeable future.

The rates

Since 2005, the rates of CCL have increased based on average RPI. Each year the increase in rates is announced through the chancellor’s budget.

Outlined are CCL rates dating back to 2013/2014. Each rate takes effect from the beginning of the financial year, April 1st.

Commodity

2013/2014

2014/2015

2015/2016

2016/2017

2017/2018

Electricity (£/kWh)

£0.00524

£0.00541

£0.00554

£0.00599

£0.00568

Gas (£/kWh)

£0.00182

£0.00188

£0.00193

£0.00195

£0.00198

LPG (£/kWh)

£0.01172

£0.01210

£0.01240

£0.01251

£0.01272

From 2020 the rate for electricity will decrease, while the gas rate will continue to increase. This is so within these years the gas rate reaches 60% of the electricity rate by 2021/2022.

Commodity

2018/2019

2019/2020

2020/2021

2021/2022

Electricity (£/kWh)

£0.00583

£0.00847

£0.00811

£0.00775

Gas (£/kWh)

£0.00203

£0.00339

£0.00406

£0.00465

LPG (£/kWh)

£0.01304

£0.02175

£0.02175

£0.2175

We can see for the 2019/2020 rates; there is a significant increase. This is because the Carbon Reduction Commitment is being scrapped in October 2019.

If you are a participant in CRC and you pay CCL, then this year (2019) will be a 'double whammy' of both CCL and CRC, as you will be paying the new CCL rate and the final CRC cost in 2019.

A study of future costs

CCL applies to a cross-sector of organisations, with exemptions only in place for low energy use and most charities and non-profits.

This study looks at seven key sectors within the UK; Hotels, Supermarkets, Leisure Centres, Hospitals, Office Blocks, Schools & GP Surgeries. We have taken actual consumption figures from these sectors and applied CCL to each one to identify and understand the upcoming cost to organisations.

It should be noted some schools, GP practices and some other businesses may not pay CCL due to low energy use. However, there are many schools and GP surgeries that do pay CCL.

Where can you find your CCL cost?

CCL is often shown as a separate line item on energy bills (usually above the VAT line) and is also VAT applicable.

It must also be noted that energy prices and energy consumption of buildings may increase or decrease in the period outlined and the calculations may not fully represent the sectors shown.

CCL Rates for 2018/2019 are already in effect. However, these rates will increase significantly next year. Each calculation of ‘CCL Payable’ is based on per site. For example, if you have six leisure centres, based on the below consumption, you’d pay CCL on all six sites.

Sector

Annual Consumption (kWh)

CCL Rates - 2018/2019

CCL Payable - 2018/2019

Electricity

Natural Gas

Electricity

Natural Gas

Electricity

Natural Gas

Total CCL Payable

Hotels

2,704,105

8,662,142

£0.00583

£0.00203

£15,764.93

£17,584.15

£33,349.08

Supermarkets

3,791,180

947,795

£0.00583

£0.00203

£22,102.58

£1,924.02

£24,026.60

Leisure Centres

919,970

1,683,655

£0.00583

£0.00203

£5,363.43

£3,417.82

£8,781.24

Hospitals

11,595,555

7,020,269

£0.00583

£0.00203

£67,602.09

£14,251.15

£81,853.23

Office Blocks

396,715

476,537

£0.00583

£0.00203

£2,312.85

£967.37

£3,280.22

Schools

222,129

542,604

£0.00583

£0.00203

£1,295.01

£1,101.49

£2,396.50

GP Practices

55,969

53,751

£0.00583

£0.00203

£326.30

£109.11

£435.41

We can see how significant the rate increase is on the costs of CCL to these 7 sectors. The following included are the years; 2019/2020, 2020/21 and 2021/2022.

Sector

Annual Consumption (kWh)

CCL Rates - 2019/2020

CCL Payable - 2019/2020

Electricity

Natural Gas

Electricity

Natural Gas

Electricity

Natural Gas

Total CCL Payable

Hotels

2,704,105

8,662,142

£0.00847

£0.00339

£22,903.77

£29,364.66

£52,268.43

Supermarkets

3,791,180

947,795

£0.00847

£0.00339

£32,111.29

£3,213.03

£35,324.32

Leisure Centres

919,970

1,683,655

£0.00847

£0.00339

£7,792.15

£5,707.59

£13,499.74

Hospitals

11,595,555

7,020,269

£0.00847

£0.00339

£98,214.35

£23,798.71

£122,013.06

Office Blocks

396,715

476,537

£0.00847

£0.00339

£3,360.18

£1,615.46

£4,975.64

Schools

222,129

542,604

£0.00847

£0.00339

£1,881.43

£1,839.43

£3,720.86

GP Practices

55,969

53,751

£0.00847

£0.00339

£474.06

£182.22

£656.28

Sector

Annual Consumption (kWh)

CCL Rates - 2020/2021

CCL Payable - 2020/2021

Electricity

Natural Gas

Electricity

Natural Gas

Electricity

Natural Gas

Total CCL Payable

Hotels

2,704,105

8,662,142

£0.00811

£0.00406

£21,930.29

£35,168.30

£57,098.59

Supermarkets

3,791,180

947,795

£0.00811

£0.00406

£30,746.47

£3,848.05

£34,594.52

Leisure Centres

919,970

1,683,655

£0.00811

£0.00406

£7,460.96

£6,835.64

£14,296.60

Hospitals

11,595,555

7,020,269

£0.00811

£0.00406

£94,039.95

£28,502.29

£122,542.24

Office Blocks

396,715

476,537

£0.00811

£0.00406

£3,217.36

£1,934.74

£5,152.10

Schools

222,129

542,604

£0.00811

£0.00406

£1,801.47

£2,202.97

£4,004.44

GP Practices

55,969

53,751

£0.00811

£0.00406

£453.91

£218.23

£672.14

Sector

Annual Consumption (kWh)

CCL Rates - 2021/2022

CCL Payable - 2021/2022

Electricity

Natural Gas

Electricity

Natural Gas

Electricity

Natural Gas

Total CCL Payable

Hotels

2,704,105

8,662,142

£0.00775

£0.00465

£20,956.81

£40,278.96

£61,235.77

Supermarkets

3,791,180

947,795

£0.00775

£0.00465

£29,381.65

£4,407.25

£33,788.89

Leisure Centres

919,970

1,683,655

£0.00775

£0.00465

£7,129.77

£7,829.00

£14,958.76

Hospitals

11,595,555

7,020,269

£0.00775

£0.00465

£89,865.55

£32,644.25

£122,509.80

Office Blocks

396,715

476,537

£0.00775

£0.00465

£3,074.54

£2,215.90

£5,290.44

Schools

222,129

542,604

£0.00775

£0.00465

£1,721.50

£2,523.11

£4,244.61

GP Practices

55,969

53,751

£0.00775

£0.00465

£433.76

£249.94

£683.70

Comparing year on year, we can see that come 2020/2021/2022 the cost of these rates starts to balance out and remains at a steady state. It is still a significant increase and extra cost to organisations.

Sector

2018/2019

2019/2020

2020/2021

2021/2022

Hotels

£33,349.08

£52,268.43

£57,098.59

£61,235.77

Supermarkets

£24,026.60

£35,324.32

£34,594.52

£33,788.89

Leisure Centres

£8,781.24

£13,499.74

£14,296.60

£14,958.76

Hospitals

£81,853.23

£122,013.06

£122,542.24

£122,509.80

Office Blocks

£3,280.22

£4,975.64

£5,152.10

£5,290.44

Schools

£2,396.50

£3,720.86

£4,004.44

£4,244.61

GP Practices

£435.41

£656.28

£672.14

£683.70

Exemptions and Mitigation

There are several exemptions and relief schemes. The most common are; on-site self-generation which can be achieved through the installation of a CHP unit and registering it successfully with the governments’ CHPQA Programme; and through Climate Change Agreements (CCAs).

CHPs, CHPQA and the submission process

The CHP Quality Assurance programme was introduced at the same time as CCL in 2001 and, like most government programmes, it has developed tighter rules to ensure the programme works to its best abilities.

The CHPQA Programme is a government initiative that aims to provide a methodology for assessing all types and sizes of Combined Heat & Power (CHP) schemes throughout the UK. Participation in the scheme is voluntary. However, successful CHPQA certification grants eligibility to a range of benefits including; Renewable Obligation Certificates, Renewable Heat Incentive, Enhanced Capital Allowances and preferential Business Rates. Those operating CHP units could (and still can) obtain an exemption from CCL on the gas used by the CHP scheme by registering with the CHPQA programme.

However, HMRC mandated the requirement that annual reconciliation should be carried out. This entails determining the CCL paid in the previous year and retrospectively applying an actual exemption based upon an issued CHPQA certificate.

Climate Change Agreements (CCAs)

A CCA is a voluntary contractual agreement between an organisation and the Environment Agency (EA). The organisation, usually an industrial company, agrees to report energy use against a target to the EA.

CCAs are a UK Government initiative with the objective of reducing industrial energy use and CO2 emissions. For those organisations involved at the time, the first reporting period was in 2002. In its current form, CCAs are to continue operating until 31st March 2023.

Legislation within the Finance Act 2000 made provision for a reduced rate of the levy for energy-intensive industries that have entered into a negotiated energy efficiency Climate Change Agreement (CCA).

If neither of these are viable options for your organisation, it is recommended that you undertake energy audits of your sites to help identify energy-saving measures that can reduce your energy use and in turn reduce your CCL liability.

Summary

CCL is a tax that is set to stay for the foreseeable future and energy is taking a more prominent position within an organisation’s running costs. Both can no longer be ignored by users of energy, energy consultants or industry media. It is crucial that more organisations are made aware of these costs and how to go about reducing them.

Businesses with CCAs or those operating CHP unit(s) can reduce liability further. For organisations starting on the road to reduce their CCL liability, if CCA’s are not a viable route, then the installation of a CHP should be considered as soon as possible. Further to this, energy audits to reduce energy costs need also be considered.